HALLIBURTON / KBR
United States: Department of Justice
United States: Securities and Exchange Commission
United Kingdom: Serious Fraud Office
Nigeria: Economic and Financial Crimes Commission
Kellogg Brown & Root, LLC ("KBR LLC")
Kellogg Brown & Root, Inc. ("KBR, Inc.")
Halliburton Company ("Halliburton")
M.W. Kellogg Limited (a UK subsidiary of KBR) ("MWKL")
Albert "Jack" Stanley (former chief executive officer and chairman of KBR)
Wojciech Chodan (former commercial vice president and consultant to MWKL)
Jeffrey Tesler (London attorney and agent hired by the TSKJ joint venture)
DESCRIPTION OF BUSINESS
Engineering and construction of liquefied natural gas facilities
Houston, Texas, United States
NATIONALITY OF FOREIGN OFFICIALS
SUMMARY OF ALLEGATIONS
In February 2009, the DOJ and SEC charged KBR LLC, KBR Inc., and Halliburton with various FCPA violations in connection with a decade-long bribery scheme to obtain engineering, procurement and construction ("EPC") contracts to build liquefied natural gas ("LNG") facilities on Bonny Island, Nigeria. The DOJ charged KBR LLC with conspiracy and violations of the anti-bribery provisions of the FCPA. The SEC charged KBR, Inc., KBR LLC's parent company, and Halliburton, its former parent company, with books and records and internal controls violations in connection with the bribery. Previously, in September 2008, KBR Inc.'s former chief executive officer ("CEO") and chairman, Albert "Jack" Stanley, pled guilty to conspiracy to violate the FCPA in connection with his role in the bribery scheme.
Between 1995 and 2004, KBR LLC and three other joint venture partners (France's Technip SA; Snamprogetti Netherlands B.V., a subsidiary of Saipem SpA of Italy; and Japan's JGC Corporation) (collectively, the "TSKJ" joint venture) were awarded four EPC contracts by Nigeria LNG Ltd. ("NLNG") to build LNG facilities on Bonny Island. The four contracts were valued at USD 6 billion in total. NLNG's largest shareholder, holding a 49 percent stake, was the government-owned Nigerian National Petroleum Corporation ("NNPC"). According to court documents, the joint venture authorized, promised and made a variety of improper payments to Nigerian government officials, including officials of the executive branch.
Tens of millions of dollars in consulting fees were paid to two agents for use in bribing Nigerian officials. KBR LLC admitted that, at certain key junctures before the award of the EPC contracts, former CEO Albert "Jack" Stanley and others met with three successive top-level office holders in Nigeria's executive branch, asking the office holder to designate representatives through whom the joint venture would negotiate the improper payments made to the government officials. Over the course of the ten-year scheme, the first agent, a consulting company incorporated in Gibraltar but based in the United Kingdom ("UK"), received approximately USD 132 million, while the second agent, a global trading company headquartered in Tokyo, Japan, received over USD 50 million. The joint venture's cultural committee (set up to orchestrate the improper payments) decided that the UK agent would make the improper payments to high-ranking government officials while the Japanese agent would make the payments to the lower-ranking officials.
The improper payments were concealed through sham contracts with the two agents. In addition, in an effort to obtain further insulation from FCPA liability, the joint venture partners operated in Nigeria through three Portuguese special purpose corporations, owned equally by the four joint venture companies.
Iraq and Angola
In July 2012, the Company acknowledged that it had begun an internal investigation into possible FCPA violations by the Company in Angola and Iraq.
RATIO OF IMPROPER PAYMENTS TO BUSINESS ADVANTAGE
Approximate Payments to Nigerian Government Officials
Value of the Four Contracts Obtained
USD 182 million
USD 6 billion
HOW CONDUCT WAS DISCOVERED
According to press reports, the TSKJ bribery scheme in Nigeria came to light during the course of investigations by French prosecutors into Elf-Aquitane's operations in Asia and Africa. During those investigations, Georges Krammer, former director general of Technip, was accused of paying EUR 3 million in illegal commissions. Although disputed by Technip management, Krammer claimed that the commissions were legal and in line with company policy. Facing charges of misappropriation, Krammer went before a French judge and disclosed how Technip's commission payment system worked in Indonesia, Thailand and on the LNG Project in Nigeria. This prompted a French investigation into the Nigeria LNG bribery scandal, which then triggered investigations by the United States, Switzerland, and Nigeria.
On 11 February 2009, KBR LLC pleaded guilty to conspiracy to violate the FCPA and to four counts of violating the FCPA's anti-bribery provisions. Under the plea agreement, KBR LLC agreed to pay a USD 402 million criminal fine and to retain an independent compliance monitor for a three-year period. The Company also agreed to cooperate with the DOJ in its ongoing investigations. It appears that Halliburton, KBR LLC's former parent company, will in fact pay all or most of the USD 402 million fine on behalf of KBR LLC, due to an indemnification agreement signed at the time of KBR LLC's separation from Halliburton in January 2009.
Also on 11 February 2009, without admitting or denying the SEC's allegations, KBR, Inc. and Halliburton consented to the entry of an order that (i) permanently enjoins KBR, Inc. from violating the anti-bribery and books and records provisions of the FCPA, and from aiding and abetting violations of the books and records and internal controls provisions; and (ii) permanently enjoins Halliburton from violating the books and records and internal controls provisions of the FCPA. The two companies were also ordered to disgorge USD 177 million in ill-gotten profits. An independent monitor was imposed on KBR, Inc. for a three-year period and Halliburton was required to retain an independent consultant to review its FCPA policies and procedures.
Halliburton and the KBR entities agreed to pay total penalties of USD 579 million to settle the DOJ and SEC enforcement actions.
Previously, on 3 September 2008, the DOJ filed criminal charges against KBR, Inc.'s former CEO, Albert "Jack" Stanley, for conspiring to violate the FCPA and conspiring to commit mail and wire fraud. Stanley pleaded guilty to one count of each charge. He faces a possible sentence of seven years in prison and payment of USD 10.8 million in restitution. Stanley's sentencing was deferred until his cooperation with the DOJ in its ongoing investigation was complete. He is currently awaiting sentencing.
Also on 3 September 2008, the SEC charged Stanley with violations of the anti-bribery and books and records and internal controls provisions of the FCPA in connection with his role in the bribery scheme. Without admitted or denying the SEC's allegations, Stanley consented to the entry of a civil injunction and agreed to cooperate in the SEC's ongoing investigation.
On 17 February 2009, two UK nationals, Jeffrey Tesler and Wojciech Chodan, were indicted by a federal grand jury in Houston, Texas in connection with their participation in the bribery scheme. Tesler, a London lawyer, was allegedly one of the agents hired by the four-company joint venture to funnel bribes to high-ranking Nigerian government officials. Chodan was a former executive and consultant of a KBR, Inc.'s UK subsidiary. The indictment was unsealed on 5 March 2009 in connection with the U.S. government's extradition request and charged Tesler and Chodan with one count of conspiracy to violate the FCPA and ten substantive counts.
On 25 March 2010, District Judge Caroline Tubbs decided at Westminster Magistrates' Court that Tesler be extradited to the United States to stand trial. He had argued that the extradition request should be denied because he would no longer be able to receive a fair trial in the United States. Tesler appealed the decision, but on 20 January 2011, the UK High Court ruled that it could go forward. Tesler was formally extradited on 10 March 2011. On 11 March 2011, Tesler pleaded guilty in U.S. District Court in Houston to one count of conspiracy and one count of violating the FCPA. As part of his plea agreement, Tesler agreed to forfeit USD 148,964,568. At his sentencing, he faces faces a maximum penalty of five years in prison on the conspiracy charge, and five years in prison on the FCPA violation charge.
On 20 April 2010, Judge Tubbs ruled that Chodan be extradited to the U.S. On 6 December 2010, following his extradition to the United States, Wojciech Chodan pleaded guilty to one count of conspiracy to violate the FCPA. At his sentencing, Chodan faces a maximum penalty of 60 months in prison. As part of his plea agreement, he agreed to forfeit USD 726,885.
On 23 October 2009, Halliburton disclosed in an SEC filing that the UK's Serious Fraud Office ("SFO") may bring civil claims or criminal charges against it under various UK laws. According to Halliburton, the SFO is focused on the role of M.W. Kellogg Limited ("MWKL"), a UK subsidiary of KBR, in the TSKJ joint venture. Halliburton also said it understood that the Bonny Island project is under investigation in France, Nigeria, and Switzerland as well, and could also result in third-party claims.
The press reported that Nigeria's Economic and Financial Crimes Commission ("EFCC") had arrested ten Halliburton employees in Nigeria during a raid of the offices of Halliburton Energy Services Nigeria Limited in Lagos on 25 November 2010. The EFCC also arrested one employee each from Saipem Contracting Nigeria and Technip Offshore Nigeria. On 7 December 2010, the EFCC reportedly filed corruption charges against Halliburton, former U.S. Vice President Dick Cheney (who was the CEO of Halliburton during the period at issue), Albert Stanley (former CEO of KBR), David Lesar (current CEO of Halliburton) and William Utt (current CEO of KBR). Technip, Snamprogetti and JGC Corp. were reportedly also charged on the same day. The case number is Federal Republic of Nigeria v. Halliburton and others, CV/435/10, High Court of Justice, Abuja Judicial Division (Abuja).
On 21 December 2010, Halliburton reported that it reached a settlement with the Nigerian government, agreeing to pay a USD 32.5 million penalty and USD 2.5 million in legal expenses (the amount is significantly less than the supposed USD 120 million fine reported in the press previously). Halliburton also agreed to assist the Nigerian government in recovering frozen assets in Switzerland. In exchange, Nigeria agreed to withdraw all lawsuits and charges against KBR and Halliburton corporate entities and associated persons. According to press reports, former U.S. President George H. W. Bush and former Secretary of State James Baker assisted with the settlement negotiations. Former Vice President Dick Cheney had been charged by the Nigerian authorities as a former Halliburton executive.
On 20 December 2010, Saipem announced that Snamprogetti had entered into a settlement agreement and non-prosecution agreement with the Federal Government of Nigeria to resolve the investigation. Snamprogetti agreed to the payment of a criminal penalty of USD 30 million, along with USD 2.5 million in reimbursement for legal costs and expenses incurred by the Nigerian authorities. Nigeria agreed to dismiss all charges against Snamprogetti and to renounce to any civil claims and criminal charges in any jurisdiction.
On 16 February 2011, following a High Court Order issued under Part 5 of the UK's Proceeds of Crime Act of 2002, the SFO announced a civil settlement in which MWKL will pay approximately GBP 7 million in recognition of funds MWKL was due to receive. The SFO recognized that MWKL took no part in the criminal activity which generated the funds, but rather was used by its parent company, which participated in the joint venture and bribery scheme to bid for contracts on Bonny Island. The agreement follows MWKL's self-reporting to the SFO in October 2009 and will lead to payment within fourteen (14) days in full and final settlement of the case. The agreement also insures MWKL will pay the costs of the investigation, and MWKL will overhaul its internal audit and control measures to ensure its compliance systems are in accordance with UK law.
On 22 February 2012, Wojciech Chodan was sentenced to one year of unsupervised probation by the U.S. District Court for the Southern District of Texas. Chodan was also fined USD 20,000. He had pleaded guilty to conspiracy charges under the FCPA in December 2010, and could have received up to five years in prison. Chodan's probation allows him to return to his residence in the UK.
The following day, on 23 February 2012, the judge in the case sentenced Jeffrey Tesler, a lawyer and consultant based in the UK who also pleaded guilty last year to violating the FCPA, to twenty-one months in prison, and two additional years of supervised probation. Mr. Tesler had already agreed to forfeit approximately USD 150 million held in Swiss and Israeli bank accounts, at the time of the original plea agreement in March 2011 (this was the largest individual forfeiture to-date under the FCPA). In November 2012, a French court investigating Mr. Tesler's activity agreed to postpone a hearing in the case for one year, until 11 December 2013, after Tesler's scheduled release from jail in October 2013.
Albert "Jack" Stanley, who pleaded guilty in 2008, was sentenced by Judge Keith B. Ellison to thirty months in prison, followed by three years of supervised probation, on 23 February 2012. When he pleaded guilty in 2008, Stanley was ordered to pay USD 10.8 million in restitution for the kickbacks he admitted to having taken. The judge in the case, Keith B. Ellison, agreed to allow Stanley to pay the USD 1.55 million remaining in USD 1,000 monthly installments following his release from prison. Stanley is 69 years old in 2012.
In its SEC Form 8-K filed on 19 July 2012, Halliburton announced that earlier in the month, on 9 July, the 165th Judicial District Court of Harris County, Texas had issued an order preliminarily approving the proposed settlement of a derivative suit filed against Halliburton by some of its shareholders. The derivative action had been filed in 2009 against current and former Halliburton directors and officers for violations of the FCPA while KBR, Inc. was working as a government contractor in Iraq, illegal kickbacks, fraud in government contracts, and prohibited activity in Iran.
The proposed settlement was signed by the parties in June. In it, the Company expressly denies wrongdoing by it or the individual officers and directors named, and requires that the settlement not be construed as an admission by any of the defendants. The settlement provides for mandatory FCPA and UK Bribery Act training, revisions to the Company's code of business conduct, clawbacks against the officers and directors, limitations on discretionary payments to officers and the payment of legal expenses, and ongoing review and modifications of the compliance program and code of business conduct.
In its 10-K Form submitted to the SEC on 20 February 2013, KBR, Inc. reported that its independent compliance monitor has "certified that KBR's current anti-corruption compliance program is appropriately designed and implemented to ensure compliance with the FCPA and other applicable anti-corruption laws."
- The DOJ will utilize prosecutions of corporate entities to assist in establishing cases against individual wrongdoers, as well as prosecutions of individuals to assist in establishing cases against corporate entities.
- It is possible for a parent company, in the course of spinning-off a subsidiary, to indemnify the subsidiary from fines or monetary penalties resulting from past FCPA violations.
- Taken together, the TSKJ settlements constitute some of the largest FCPA cases to-date.
Criminal Information: U.S. v. Albert Jackson Stanley (29 August 2008)
Plea Agreement: U.S. v. Albert Jackson Stanley (3 September 2008)
DOJ Press Release: "Former Officer and Director of Global Engineering and Construction Company Pleads Guilty to Foreign Bribery and Kickback Charges" (3 September 2008)
Complaint: SEC v. Albert Jackson Stanley (3 September 2008)
SEC Litigation Release: "SEC Charges Former CEO of Kellogg, Brown & Root, Inc. with Foreign Bribery" (3 September 2008)
Halliburton Press Release: "Halliburton Announces Fourth Quarter Charge Related to Prospective Settlement of Foreign Corrupt Practices Act Investigations" (26 January 2009)
Criminal Information: U.S. v. Kellogg Brown & Root, LLC (6 February 2009)
Plea Agreement: U.S. v. Kellogg Brown & Root, LLC (11 February 2009)
DOJ Press Release: "Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine" (11 February 2009)
Complaint: SEC v. Halliburton Company and KBR, Inc. (11 February 2009)
SEC Press Release: "SEC Charges KBR and Halliburton for FCPA Violations" (11 February 2009)
SEC Litigation Release: "SEC Charges KBR, Inc. with Foreign Bribery" (11 February 2009)
Judgment: U.S. v. Kellogg Brown & Root LLC (12 February 2009)
Indictment: U.S. v. Jeffrey Tesler and Wojciech J. Chodan (17 February 2009)
DOJ Press Release: "Two UK Citizens Charged by United States With Bribing Nigerian Government Officials to Obtain Lucrative Contracts as Part of KBR Joint Venture Scheme" (5 March 2009)
Vanguard: "Nigeria: Halliburton Scandal - the Nigerian Angle" (25 March 2009)
Halliburton: SEC Form 10-Q (22 April 2010)
Reuters: "Nigeria Detains 12 in Halliburton Bribery Case" (27 November 2010)
DOJ Press Release: "UK Citizen Pleads Guilty to Conspiring to Bribe Nigerian Government Officials to Obtain Lucrative Contracts as Part of KBR Joint Venture Scheme" (6 December 2010)
Bloomberg: "Nigeria Files Bribery Charges Against Former U.S. Vice President Cheney" (7 December 2010)
Reuters: "Nigeria may strike deal in Halliburton, Cheney case" (14 December 2010)
Guardian: "Nigeria to drop Dick Cheney charges after plea bargain" (15 December 2010)
The Huffington Post: "Dick Cheney Nigeria Bribery Charges Could Be Dropped For Fine" (15 December 2010)
ABC News: "Nigeria Drops Bribery Charges Against Former Vice President Dick Cheney" (20 December 2010)
Halliburton Press Release (21 December 2010)
CNN World: "Halliburton settles Nigeria bribery claims for $35 million" (21 December 2010)
Reuters: "Court backs Briton's extradition to US over bribery" (20 January 2011)
SFO Press Release: "MW Kellogg Ltd to pay 7 million GBP in SFO High Court action" (16 February 2011)
DOJ Press Release: "UK Solicitor Pleads Guilty for Role in Bribing Nigerian Government Officials as Part of KBR Joint Venture Scheme" (11 March 2011)
U.S. v. Tesler: Plea Agreement (11 March 2011)
U.S. v. JGC Corp: Criminal Information (6 April 2011)
DOJ Press Release: "JGC Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay a $218.8 Million Criminal Penalty" (6 April 2011)
DOJ Press Release: "Former Chairman and CEO of Kellogg, Brown & Root Inc. Sentenced to 30 Months in Prison for Foreign Bribery and Kickback Schemes" (23 February 2012)
Halliburton: SEC Form 8-K (19 July 2012)
Halliburton: Proposed Settlement (24 July 2012)
KBR: SEC Form 10-K (20 February 2013)
Domestic Bribery Enforcement of Foreign Entities - Formal ProceedingsEngineering/ConstructionExtractive IndustriesIntermediariesJoint VentureNon-U.S. Foreign Bribery Enforcement - Formal ProceedingsProsecution of IndividualsSubsidiaries